Market Feasibility Analysis: Accounting Services Industry - Term Paper Example

Market Feasibility Analysis Table of Content Market Feasibility Analysis 1 MARKET FEASIBILITY ANALYSIS 11 2 Accounting services Industry 2 Target Market Segments 4 Small to medium businesses 4 Potential Competitors 5 Niche Market 8 Services 8 Elements of Marketing Mix 9 References 10 Accounting services Industry The accounting services industry in Australia is stable offering financial and management services to clients. The industry experienced fluctuations in growth during the global financial crisis because of the negative impact the crisis had on professional services firms. Business confidence fell during this period and there was a significant decline in demand for accounting and financial services. Nonetheless, the industry began to recover from 2009 and experienced a strong growth of 6.0% in 2010-2011 (IBIS World, 2013). Firms got strong returns as businesses looked to restructure and required accounting service for auditing and due diligence. The industry has experienced growth over the past years notably from the expansion of products and services (IBIS, 2013). The annual growth rate for the industry was 2.2% from 2008-2013 with a revenue of $ 17bn. There are 32, 431 businesses in the industry and 131, 642 employees. Firms in the industry offer a wide range of services such as bookkeeping, data entry, payroll reconciliation, payroll reconciliation of accounts, tax compliance, year-end, government remittance, and income tax. Even during tough financial times, firms require bookkeeping services to keep on top of finances as well as government obligations, this means that the businesses in this industry are able to offer services during such times and are not significantly affected. Book keeping services are provided all year round. Government obligations for tax compliance also have to be met by both small and large business enterprises (Swift, 2007). The industry thus has a low volatility level because the stable source of revenues arising from the essential nature of the financial services. This means that both book keeping and tax compliance services will ensure that there is market for the new business if all the other factors such as competition are well factored while starting the business. The accounting services industry as a whole consists of the big corporate accounting and auditing firms, small business accounting, and personal accounting. The big four companies- Deloitte Touche, Ernst & Young, Price Water House Coopers, and KPMG - have a market share of 31.1% of the financial and accounting services whereas the rest-medium and small business enterprises take 69.9% (High Commission of India, 2012). According to IBIS (2007), the small firms derive on average 20% of their revenue from business consulting and management services, audit as well as assurance services, financial investment and planning services and bankruptcy and insolvency services. They derive 30% from taxation and personal accounting services and 50% of their profits from the business taxation services. The key external drivers in the accounting services industry are the number of businesses, policy and legislation for accounting service, pervasive outsourcing of accounting services and real GDP growth. There has been a significant increase in the rate of growth of formation of new businesses. This means a continuous growth of revenues for the firms in the accounting industry as the businesses will require financial services such as bookkeeping and tax compliance services. Changes in policies and legislations also have a positive effect on the demand for accountancy services. With the introduction of various business tax changes that have occurring since 2000, businesses are increasingly seeking financial services-the demand has risen considerably to meet government these government legislation and policies. There has also been pervasive outsourcing of accounting services by both the businesses and the government. Outsourcing of these services has led to a significant increase in the demand for the services of the industry. Real GDP growth also has a major impact on the industry. Changes in the economic activity have an impact on the demand of services of the firms in areas such as acquisitions, mergers, public floats, re-financing deals and takeovers. This mostly has an impact on the large firms in the industry. An improvement in the economy has a positive impact on both small and large businesses in the industry. The key success factors in the accounting services industry are customer satisfaction through cost efficiency, time, quality, and innovation. Keeping the costs low will provide the organization will a strong competitive advantage. High quality services are also be a key competitive variable. Providing a speedier response to the customer requests, and ensuring a 100 percent on-time delivery is also a key success factor. Being innovative and developing a steady stream of services and having the capacity to adapt rapidly to changing customer requirements is also important. This mostly takes the form of managing a critical path. To ensure customer fulfillment, it is important to identify and manage critical path towards the key objectives, for instance, accurate and timely closure of the accounts on a monthly basis. Service fragmentation is also a key success factor in the industry. According to IBIS report (2013), the industry has experienced an expansion of services and products around offering advisory services. The big four firms in the industry have a competitive advantage over their competitors as they offer a wide range of accounting and financial services. The High Commission of India (2012) report noted that “a significant factor in the revenue growth of the larger firms over the past few years was the large variety of services they offered” (pg. 4). The big and medium sized companies in the industry have developed new business areas, which are not related directly to the main accounting services. Acquiring the right technology is also an important key success factor. The companies have to decide the way to deal with computerized accounting software packages used by most businesses. Providing accounting services for numerous types of business accounting software application enables accounting companies to acquire a varied client base. Target Market Segments Small to medium businesses The firm will offer monthly bookkeeping and tax compliance services to small and medium businesses. There are various factors, which will guide the purchase decision of the customers in this segment. First, most of these businesses are usually designed to stay small whereas others are growing through a phase, this means that they require book keeping, payroll, and tax preparation services. They are usually concerned about losing control however they can be generally persuaded to use outsourced bookkeeping and accounting with cost analysis. With high stakes, both small and medium businesses can make greater use of management accounting services, since most of them cannot afford to hire a dedicated chief financial officer. Most of these businesses also do not usually require a full-time bookkeeper, however they can benefit from part-time help. Most of these businesses are able to save money through outsourcing the services because they are not generally core to what they seek to do. According to the High Commission of India (2012) report, bookkeeping is very popular among small businesses and they outsource bookkeeping services to facilitate focusing on key business activities and avoiding the need to devote business resources to the role. In Australia there are about 183,000 businesses which are classified as small-to- medium enterprises (SMEs) with a yearly turnover of about $ 2 million to $ 250 million (Australian Taxation Office, 2013). About 80% of these businesses have a turnover ranging from $ 2 million to $ 10 million. They are taxpayers who operate relatively single entity and simple structures such as partnerships, private companies, sole traders, or trusts. This segment consists of “over 2000 public company groups, over 11,000 self-managed superannuation funds and around 400 larger superannuation funds regulated by the Australian Prudential regulation Authority (APRA)” (par. 1). The large number of small and medium businesses makes this an attractive market segment for the new accounting services firm. This group will make very consistent use of part-time bookkeepers as they lack the resource to hire or offer proper training or oversight to their bookkeepers and hence they risk suffering from not having experienced bookkeepers. The accounting firm will offer solution to these problems. Small and medium businesses are also required to remit their taxes. Most of these businesses do not do all their tax compliance work in-house but outsource to these services. They are thus an attractive market segment for the tax compliance services. The new accounting firm will help them meet their tax compliance responsibilities and obligations whilst discovering tax opportunity opportunities and offering specialized tax services in order to reduce their tax liabilities in the current tax regulations framework. Potential Competitors The small and businesses accounting sector comprise of many independent bookkeepers and accountants and small firms. The large firms in the industry pursue large and some medium business clients. Top managers and owners of small businesses purchase Bookkeeping and tax compliance services. The four potential small medium competitors are Azure group, Cross Accountancy Services, A&A financial services, and Allan Hall business advisors. Azure Group is a firm, which offers CFO, accounting, business advisory services-it aims to support the growth as well as the success of fast growing entrepreneurial small and medium through offering practical and innovative accounting services through its highly experience accountants and the virtual chief financial officers. The company usually provides quality services, which ensures that both small and medium businesses benefit from its practical involvement of the chartered accountants, management consultants, tax advisors, virtual CFOs, and corporate advisory team. The firm services are usually tailored to address the different business accounting needs and business aims to make sure that the company develops and it is able to reach the owner personal and business financial objectives. This promotes innovation and ensures that customers benefits from quality services, which are delivery in the right time. Cross accountancy Services also provides accounting services to small and medium sized enterprises both in Australia and overseas. It is an experienced accounting company, business tax advisory and registered tax agent. To ensure customers benefit from quality services, the company accountants usually work with the customers in order to explore saving opportunities and to maximize tax benefits. This is facilitated by assigning the right accountant with the right experience to deal with the business challenges to facilitate sustenance of domination, expansion, growth, and development. The company employees follow high ethical standards during the provision of quality services. The company also has highly experienced tax experts with extensive knowledge and experience of tax laws. It offers on time and reliable services. It also uses the right technology to maximize customer benefits, for instance the company uses the best accounting software and provides online services to ensure its customer receives information. A & A financial services is also an accounting firms which focuses on the everyday business needs of small business and individual owners through providing customized advice on tax issues and other financial matters. For both small and medium enterprises, the company provides accounting and book keeping tasks to help the enterprises to focus on business growth. The company offers diversified services such as business checkup, business advisory, payroll service, tax preparation, business formation advice, accounting, and bookkeeping. Allan Hall, a Sydney Chartered Accounting company, consists of a diverse team of business specialists and accountants who offer a complete business and tax advisory services improving the efficiency of small and medium enterprises, saving time and reducing their costs. The company employees usually have experience in a wide range of industries, providing accounting and business services to both local and international clients seeking advice on Australian financial accounting and tax law. The company provides professional accounting and tax advice and support to small businesses with an ambition to grow as well as large businesses seeking to expand into the international arena. The tax and financial accounting services are designed to match and address the different client needs. The company also uses technology to maximize customer benefits, for instance, the company has financial accounting software, which ensures that business starters benefit from quality advice on accounting matters. The established businesses usually benefit from the accounting advice and knowledge on tax payments reduction hence increasing returns and financial security. The company provides complete financial reporting services, including tax return preparation and statutory compliance requirements. The company ensures that all the client’s statutory documents and returns are well prepared, submitted within the set deadline and the client is fully informed about the requirements as well as their results. This ensures that the successful and smooth running of financial strategy is guaranteed. The four key competitors have maximized on time, quality, provision of diversified services/segment fragmentation and acquiring the right technology. This has provided the company a key competitive advantage as they maximize on the key competitive variables. The substitute option for the company services will be the option of the small and business enterprises hiring their own bookkeepers instead of outsourcing. The growth and expansion of the small and medium enterprises might cause them to seek to hire an in-house accountant to undertake the book keeping and tax compliance tasks. The accounting firm will show the client that it is extremely scalable and flexible in a manner that in-house bookkeepers cannot be. To facilitate this, bookkeeping and tax compliance services will be made the core of the accounting firm. The threat of new entrants is high as individuals and even firms can easily start up businesses for offering the same service offerings as the company. Major growth is experienced in SMEs specializing traditional accounting areas of superannuation and tax in Australia (Leung, 2008). To ward off prospective competitors, the newly established accounting firm will only focus on, improve bookkeeping, and tax compliance services. Diversified services will be offered under the two types of services, for instance, under the bookkeeping services will be inventory management, payroll processing, sales tax processing, financial statement preparation, bank reconciliations, accounts receivable (invoicing, entry, collection, deposits) and accounts payable (bill paying, entry). By concentrating on the two services, the accounting firm will be able to provide quality services, which will ensure that the customers are loyal. The company will also hire four highly experienced accountants to ensure delivery of quality services in the right time to the clients and use the current technology to improve service provision. This will also ensure provision of tax compliance services of a consistently high quality. Niche Market In Australia, there are about 183,000 businesses, which are classified as small-to- medium enterprises (SMEs). New South Wales has the largest number of SMEs at 33.3% (about 59, 940 SMEs) (Commonwealth Australia, 2011). The accounting firm will target 10,000 clients (about 17% of the total SMEs) in different sectors. This will ensure better delivery of accounting services to this number. The firm will increase its focus when it attains a competitive advantage in the market. This will mean that the company will have better returns to even expand its operations and to hire more employees to assist with the workload. Services The bookkeeping services to be offered by the accounting firm will be inventory management, payroll processing, sales tax processing, financial statement preparation, bank reconciliations, accounts receivable (invoicing, entry, collection, deposits) and accounts payable (bill paying, entry). The tax compliance services will comprise of services such as tax preparation, tax planning and dealing with tax problems such as back taxes owed, audit representation, and bankruptcy. The business manager will audit and supervise the work of the ten employees, answer their questions as they arise, provide quality assurance, and review the reports and files created by the employees to make sure that they follow the correct formats and are prepared correctly. This will ensure provision of quality services. Customer loyalty will be encouraged through thanking the customers during times that are significant to them, for instance, they will be sent cards and small tokens along congratulatory message when they expand their business in a significant manners (new business line or revenue stream). This will reinforce the idea that the accounting firm is a partner in their success. The employees will be encouraged to focus on such milestones. The firm will also use loyalty service and product offerings for loyal customers. Customers who have used the company for more than one year will be guests’ presents in the firm monthly seminars, which will offer the client a way of marketing their individual businesses, while explaining the way the firm assisted them to attain their business objectives. The firm will conduct satisfaction surveys constantly with the loyal customers and upon completing services for one-time customers. The responses will be compiled in a database and the reasons for dissatisfaction (if any) will be addressed to solve the problem for the client and future client. Refunds or discounts will be provided to the unsatisfied customers along with an apology for the issue. These services will ensure that the firm will capture and retain customers. Increasing the number of loyal customers will translate to an increase in returns. The firm basic strengths will be superior quality service, price advantage to the other firms and customizing every client to their own unique industry. Elements of Marketing Mix The prices of the company services will be relatively lower than of the competitors at the start of the business. Customers usually prefer low cost products and services as far as they meet their quality standards (Olsen, Lee & Hodgkinson, 2006). The firm will offer low prices for quality services and this will attract customers. The firms aim to achieve a net profit of $ 80,000 in two years and to employ to accountant in two years. The small and medium businesses will be informed about the firm services through advertising through TV, local newspaper, trade magazines, radios, social media, using the website marketing strategy, and leveraging referrals from individual clients and professional contacts. The advert messages will contain the company attractive offers such as price on the different bookkeeping and tax compliance services to persuade them to buy. The website marketing strategy will be used continuously to promote the company services whereas the other methods will be used monthly to ensure that the company captures more customers. The total estimate promotional budget for the first years will be $ 30,000. The services will be provided in a central physical premise in New South Wales located on a major 4 lane Street; however, the company will start a website, which will be greatly used to keep in touch with the SMEs. The business premise will be 900 square foot office space, which will hold a front reception, workspace for the four workers, lunchroom, and conference room. It is feasible to set up a practice to provide bookkeeping and tax compliance services to small and medium businesses in New South Wales. References A & A Financial Services. (2013). Our Firm. Retrieved from http://www.aafinancial.com.au/ Allan Hall Business Advisors. (2013). About Us. Retrieved from http://www.allanhall.com.au/ Australian taxation Office. (2013). Compliance Program 2012-13: Small-to-Medium enterprises. Australian Government. Retrieved from http://www.ato.gov.au/taxprofessionals/content.aspx?menuid=53243&doc=/content/0032 6650.htm&page=45&H45 Azure Group. (2013). Chartered Accountants & Virtual CFOs working with you to deliver financial and business successes. Retrieved from http://www.azuregroup.com.au/ Commonwealth Australia (2011). Key Statistics: Australian Small Business. Canberra ACT: Department of Innovation, Industry, Science, & Research. Cross Accountancy Services (2013). About Cross Accountancy Services. Retrieved from http://www.castax.com.au/AboutUs.html High Commission of India (2012). Market Report on Accounting Services in Australia: A publication of High Commission of India, Canberra. IBIS Report. (2013). Accounting services in Australia: Market Research Report. Accounting Services Market Research Report | ANZSIC M6932  IBISWorld (2007). Accounting Services in Australia: L7842 (Australia). Leung, P. (2008). Accounting Services and SMEs: An Australian Study. Research Report 99 Olsen, J., Lee, B., & Hodgkinson, A. (2006). Innovation in Small and Medium-Sized Enterprises: A Study of Businesses in New South Wales, Australia. Department of Economics, University of Wollongong. Swift, B. (2007). Finance Sector Wins Major Concession. Australian Financial Review, 4. Read More